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TOKYO - Nokia, the world's biggest mobile phone maker, said on Thursday it will stop selling mobile phones in Japan except for its luxury Vertu brand after struggling to expand its presence.

Finnish Nokia has previously said it will cut costs 'decisively', expecting global mobile phone sales to shrink next year amid an economic downturn.

Japan is the world's fourth largest mobile phone market after the United States, China and India. But it makes up only a tiny part of sales at Nokia, whose products have failed to lure customers away from more sophisticated Japanese ones.

Mobile phone companies also see limited scope for growth in Japan, where 109 million subscribers, or some 85 percent of the population, already own a mobile phone. In addition, a new sales model based on higher handset prices is expected to slash annual mobile phone sales in Japan by some 20 percent.

"In the current global economic climate, we have concluded that the continuation of our investment in Japan-specific localized products is no longer sustainable," Nokia executive vice president Timo Ihamuotila said in a statement.

He added that Nokia's Japanese business would concentrate on research, development and sourcing for the global market as well as specific projects such as the Vertu brand.

The quirks of Japan's mobile phone market have prevented foreign companies, including Nokia's rivals such as Samsung Electronics and LG, from successfully targeting Japanese consumers.

Most of the mobile phones used in Japan are part of third-generation networks and boast features such as TV broadcasting and electronic payment functions.

This makes it tough for foreign manufacturers to compete with domestic handsets.

Foreign companies, excluding Sony Ericsson, only occupy around 5 percent of Japan's mobile phone market, according to IDC Japan, a research firm. Japanese manufacturers, in turn, have only a small presence outside their home market.

"Nokia is facing global earnings problems and many other issues, and this shows Japan was a low-priority market at a time when they are shoring up global operations, even though it may still be attractive," IDC Japan analyst Michito Kimura said.

"I'm not very surprised by the decision."

The move was still rather abrupt as NTT DoCoMo Inc, Japan's biggest mobile phone operator, said just this month that it would sell a new Nokia smartphone as part of its product line-up for the winter shopping season.

Third-ranked Japanese operator Softbank Corp also sells Nokia phones.

Nokia, which has a nearly 40 percent global market share, had originally said it aimed to increase its market share in Japan to a double-digit figure. It took only around 0.3 percent of the Japanese market last business year, according to the Nikkei newspaper.

Instead of a broad expansion, it will now focus on Vertu, its luxury unit.

The Yomiuri newspaper reported on Saturday that Nokia plans to launch mobile phone services for Vertu customers in Japan, using DoCoMo's network.

Vertu, founded in 1998, sells gem-encrusted, hand-built mobile phones with prices ranging from 3,500 euros to over 100,000 euros.